Guaranty Bank became the second-largest U.S. bank to fail this year after the Texas lender was shut down by regulators and most of its operations sold at a loss of billions of dollars for the U.S. government to a major Spanish bank.
The transaction approved by the Federal Deposit Insurance Corp. marked the first time a foreign bank has bought a failed U.S. bank.
The bank failure, the 10th largest in U.S. history, is expected to cost the deposit insurance fund an estimated $3 billion.
The FDIC seized Austin-based Guaranty Bank, with about $13 billion in assets and $12 billion in deposits, and on Friday sold all of its deposits and $12 billion of its assets to BBVA Compass, the U.S. division of Banco Bilbao Vizcaya Argentaria SA, Spain's second-largest bank. In addition, the FDIC agreed to share losses with BBVA on about $11 billion of Guaranty Bank's loans and other assets.
Guaranty Bank, with 162 branches in Texas and California, saw its investments in real estate lending and mortgage-backed securities bought from other banks sour and had been teetering near collapse for weeks. Its parent, Guaranty Financial Group Inc., reaffirmed Monday in a regulatory filing that the company was critically short of capital and didn't believe it could stay in business.
In April, the federal Office of Thrift Supervision said the company had engaged in "unsafe and unsound" banking practices and ordered it to raise fresh capital, find a buyer or face a takeover by the government.
Guaranty's failure, along with those of three small banks in Georgia and Alabama Friday, brought to 81 the number of U.S. bank failures this year amid rising loan defaults spurred by tumbling home prices and spiking unemployment. That is the highest number in a year since 1992 at the height of the savings and loan crisis; it compares with 25 last year and three in 2007.
Last week the FDIC seized Colonial Bank, a big lender in real estate development, and sold its $20 billion in deposits, 346 branches in five states and about $22 billion of its assets to BB&T Corp. It was the biggest bank failure so far this year, and the sixth-largest in U.S. history.
Birmingham, Ala.-based BBVA Compass, with 600 branches from Florida to California, said its acquisition of Guaranty creates the 15th-largest commercial bank in the U.S., with about $49 billion in deposits. "This compelling transaction makes excellent strategic sense and represents an exciting growth opportunity for BBVA Compass as we continue to build the leading banking franchise in the high-growth Sunbelt region," Jose Maria Garcia Meyer, chairman of BBVA Compass, said in a statement.
Like Spain's biggest bank, Banco Santander, BBVA has managed to skirt the turmoil that swept the industry worldwide by staying away from toxic assets such as mortgage-backed securities.
Instead, BBVA and other big Spanish lenders stuck to their nuts-and-bolts business of lending to consumers and businesses, relying on it for the bulk of their revenue, Nuria Alvarez, an analyst with Madrid-based brokerage firm Renta 4, said earlier this week.
With its strong presence in the American South through BBVA Compass, the bank had made no secret that it was open to expanding.
"It is no surprise. BBVA had never ruled out buying assets or banks, so long as attractive opportunities arose," Alvarez said. The deal is especially attractive because it enables BBVA to expand in Texas, she said.
The financial crisis is giving Spanish banks "the opportunity to make acquisitions and keep expanding their international presence at much more affordable prices than they would have if this crisis had not emerged," Alvarez said.
The FDIC also announced Friday the closures of Internet-based ebank, located in Atlanta, with $143 million in assets and $130 million in deposits; First Coweta, based in Newnan, Ga., with $167 million in assets and $155 million in deposits; and CapitalSouth Bank, based in Birmingham, Ala., with $617 million in assets and $546 million in deposits.
Stearns Bank, based in St. Cloud, Minn., agreed to buy the assets and deposits of ebank. United Bank, based in Zebulon, Ga., is assuming the deposits and $155 million of the assets of First Coweta; the FDIC will retain the rest for eventual sale. IberiaBank, based in Lafayette, La., is assuming the deposits and $589 million of the assets of CapitalSouth Bank.
Those failures are expected to cost the insurance fund an estimated $63 million for ebank, $48 million for First Coweta and $151 million for CapitalSouth Bank.